Chow Yuen Ling v. The Official Receiver and Trustee in Bankruptcy of Au Yeung Kwok Wai, A Discharged Bankrupt

HCMP1908/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1908 OF 2012

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BETWEEN

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D E C I S I O N

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1.This is the plaintiff’s application for vacation of registration of the bankruptcy order of her husband (“the Bankrupt”) in the Land Registry against the property registered in her sole name (“the Property”).

2.The background may be summarized as follows.

Background

3.The Bankrupt was adjudicated bankrupt on 2 May 2002 upon a self petition.  By summary procedure order dated 7 August 2002, the Official Receiver (“OR”) was appointed the trustee in bankruptcy.  He was discharged from bankruptcy on 2 May 2006.

4.At the interview that the Bankrupt gave shortly after the bankruptcy order, he told the OR that he used to be the owner of a property situated at Kwai Chung (“the Kwai Chung Property”), which he sold in January 2002, yielding net sale proceeds of about HK$130,000.00, which he received in February 2002.  He then gave the sale proceeds to the plaintiff who spent the same on the renovation of the Property, which she bought in her own name in February 2002.  Shortly after the interview, the Bankrupt provided a statement (“the Statement”) to the OR.  In the Statement, he recounted the details of the above arrangement.  He further claimed that the plaintiff had paid half of the mortgage of the Kwai Chung Property and that she was entitled to half of the interest therein, referring to the sale proceeds.  However, he had not provided any documentary evidence to substantiate the assertion.

5.The OR took the view that according to what the Bankrupt had said in the Statement, prima facie, he had interest in the Property.  Pursuant to section 58 of the Bankruptcy Ordinance,[1] his interest in the Property became vested in the OR upon making of the bankruptcy order.

6.By a letter dated 22 May 2002, the OR warned the plaintiff that the bankruptcy order would be registered against the Property. In order to ascertain the Bankrupt’s interest in the Property, the OR asked the plaintiff to provide documents and information on the following matters :

(1)  The common intention between the plaintiff and the Bankrupt at the time when the two Properties were purchased.

(2)  The contributions made by the plaintiff towards the acquisition of the two Properties, including down payments, conveyancing costs, decoration expenses and subsequent repayment of mortgage loans; and

(3)  The amount of outstanding sum due to the mortgage for the Property.

7.The plaintiff did not reply to the letter.  Nor did she raise her objection to the proposed registration of the bankruptcy order against the Property in the Land Registry.

8.On 8 July 2002, the bankruptcy order was registered.

9.On 22 February 2012, the plaintiff made enquiry with the OR about the registration of the bankruptcy order against the Property.  It is her case that she wanted to take out a mortgage on the Property but her application was refused by the bank which took the view the registration of the bankruptcy order was an encumbrance on the Property.  In the ensuing correspondence, the OR invited the plaintiff to consider acquiring the Bankrupt’s interest in the Property.  By a letter dated 17 April 2012, the plaintiff’s solicitors made an open offer of HK$180,000.00.  Further correspondence followed but with no avail.

10.On 10 August 2012, the bankruptcy order was re-registered.  On the OR’s case, it was not necessary to do so but it was done out of prudence.

11.In September 2012, the plaintiff took out the present proceedings.

Discussion

12.The OR’s case is straightforward.

13.Rule 73 of the Bankruptcy Rules provides :

“Where a bankruptcy order is made, the trustee may register a memorial of such bankruptcy order in the Land Registry against any property registered in the name of … the spouse of the debtor.”

14.Since the Bankrupt’s interest in the Property became vested in the OR when the bankruptcy order was made pursuant to section 58 of the Bankruptcy Ordinance, the OR was entitled to register the bankrupt order against the Property in the Land Registry.

15.I agree.

16.Ms Cheung, for the plaintiff, first argued that at best, the OR only has a right of potential claim to recover the Bankrupt’s interest from the plaintiff for the benefit of the estate.  That does not constitute an intent which is capable of being vested in the OR on the making of the bankruptcy order.  She cited the English case of Stonham v Ramrattan[2] in support.

17.The facts and holdings of that case are sufficiently set out in the head note.  I shall not repeat them here.  In gist, the English court found that under the operation of the applicable provisions, the husband did not have an interest vested in him in the matrimonial home at the commencement of the bankruptcy.  The first thing to note is that there are no similar provisions in Hong Kong.  More importantly, the plaintiff has so far adduced no evidence to dispute the OR’s case that the Bankrupt does have an interest in the Property arising from his contributions to the renovation in February 2002.  In fact, the plaintiff had openly acknowledged that her husband did have an interest in the Property.  In her solicitors’ letter dated 17 April 2012, it was stated that she was willing to pay HK$180,000.00 to procure the Bankrupt’s interest in the Property.  Although the offer was later withdrawn, there is no evidence to show that the acknowledgment of her husband’s interest in the Property was.  Contrary to Ms Cheung’s submission, I cannot simply infer that the plaintiff had withdrawn the acknowledgement because she had withdrawn the offer.  The English case is clearly distinguishable.

18.Ms Cheung next argued that the registration of the bankruptcy order is in the nature of lis pendens.  Since the OR does not intend to proceed with the claim against the plaintiff, it should be vacated.  This submission is misconceived because the registration is not in the nature of lis pendens : see section 1A of the Land Registration Ordinance.[3]

19.Ms Cheung also argued that the bankruptcy order has not been registered after the expiry of 5 years.  This point is right only if the order is in the nature of lis pendens.  Since it is not, this point must fail.

Conclusion

20.For the above reasons, the plaintiff’s application is dismissed.

[Submission on costs]

21.Costs should follow the event.  The plaintiff shall pay the OR costs of the proceedings, including all the costs reserved, to be taxed if not agreed.

Ms Karen Cheung, instructed by Kenneth C C Man & Co, for the plaintiff

Ms Carman Chan, Senior Solicitors of the Official Receiver, for the defendant